Pietro Doran: Interested in attracting the Korean institutional investors to Mongolia

D.Bekhbayar

-What is the purpose of your visit in Mongolia?

-Well, it is the first time I am in Mongolia.  Alisher and I have been friends for over 4 years and I’m proud to say that. Alisher is a member of my firm’s Board of Advisors. I have followed what Alisher has been doing in Mongolia over the past few years and I am very impressed with the organization that he has built along with his expertise and the international reputation that he has built as  one of the most knowledgeable  spokespeople for the new Mongolian economic experience. I am using the phrase  “experience” because what is going on in Mongolia today is about a rate of economic development that very few countries have experienced in their entire history, and Mongolia is about to shine as one of the stars of  a group of emerging countries. I recognize the path that Mongolia is on as I have been fortunate enough to have been working for almost 20 years in a county that has that has recently shared the experience of extraordinary economic change – that country is the Republic of Korea. So I see the parallel of what I experienced in Korea about to happen in Mongolia. We have an unusual opportunity  in the partnership between Eurasia Capital and Doran Capital Partners; there is somebody like me in Korea, a foreigner who has spent his career in Korea, and there is somebody like Alisher in Mongolia, a person who has been a visionary on the opportunities of Mongolia’s future. The two of us can link our mutual professional experiences  in working within countries undergoing rapid political, economic and social change.

-Which activities are you planning to carry out within the scope of your cooperation with Eurasia Capital?

-It is our goal to bring together our knowledge, insight and understanding for the unique challenges faced by ancient cultures experiencing rapid modernization and globalization.  By bringing together our firms  that we have independently built, and by taking advantage of  our mutually extensive expertise in the fields of finance, investment management, infrastructure, construction and urban development, Alisher and I, together with our partners,  hope to achieve some great successes not only for our new joint venture, but for both Korea and Mongolia. The advantage that Doran Capital Partners and Eurasia Capital  can bring to investors is  disciplined approach. We can help investors from Korea looking to invest in Mongolia avoid the mistakes that many foreign investors make in emerging markets. And I would say that  through  Eurasia Capital Korea we can guide Korean investment initiatives in Mongolia by  articulating the positive aspects of the Mongolian investment market,  by informing investors of the regulatory challenges to be considered, by  identifying creditable  investment opportunities and sourcing qualified local partners whenever necessary.  Eurasia Capital is uniquely positioned to act as a “bridge” linking Korean investors with the Mongolian market due to the impressively skilled multi-national team of investment and market analysts all located in Ulaanbaatar.

-What can you tell us about foreign investment from your experiences?

-Because Mongolia is developing economy its dynamic growth is still a young experience in terms of its political and economic stage of maturity. The regulatory environment in terms of foreign investment still evolving and the challenges will only increase as the average Mongolian citizen wonders “what do I get from this market expansion” and their voices will have to be carefully heard by politicians charged with meeting Mongolians expectations  as political power in a democratic Mongolia is defined by its citizen’s votes. It is inevitable that  regulatory changes will continually evolve to meet the ever increasing complexity and sophistication of a growing Mongolian economy.  This is why most investors tend to be very nervous about going into a developing economy as the  laws and regulations governing and effecting foreign investment tend to be in a constant state of evolution as political needs and economic expediency must be balanced with increasing societal expectations. So often in rapidly growing economies one finds that what was true today may not be true tomorrow. That was the Chinese experience over the past 10 years for many early Korean investors. The Koreans actually had some terrible problems investing in China as many Korean companies filled with excitement at the potential of the Chinese market implemented investment initiatives  without bothering to understand or analyze the unique cultural and political challenges that the Chinese market presented.

-Why these problems happened in China?

-I suppose that many Koreans thought that  their country’s proximity and long history of cultural exchanges  over the past 5,000 years gave them a unique insight into China which, unfortunately, too many Korean investors learned wasn’t necessarily true or useful. Simply put,  the Koreans were wholly unprepared for the magnitude and pace of the political, economic and social forces shaping China and many, actually very many, were in fact badly hurt for the experience. This is what we at Eurasia want to help investors avoid doing in Mongolia.

-How do you avoid risks in such countries?

-By having a partner like Alisher we are able to access his deep understanding for the country as well as his intensive commitment to improving the investment environment for the benefit of both Mongolians and foreign investors alike. Alisher has assembled a wonderful multi-national group of some of the most intelligent people I have ever met, and this is exactly how you go about minimizing market risk for investors. The advantage I think that Doran Capital Partners can bring in terms of Korean investment, as opposed to US or, European investment is that only 25 years ago Korea was, in fact, much like Mongolia today. Not so long ago Korea was continually accused by the Western world of being hostile to foreign investment, of aggressively pursuing regressive trade policies to protect local industries,  of rampant patent violations and copyright infringement and, above all being among the least transparent of the world’s market economies. So, as one can see, many of the things being said about Mongolia today were said about Korea just two decades ago (and maybe not even that long ago). You see, for Koreans the memory of its time as a young developing country is still fresh. However, through that experience, Koreans know what can be accomplished  within the environment of a developing economy because the powerhouse that is Korea today was forged from the same extraordinary political and socio-economic forces that are changing Mongolia today.

-The Chairman of the Mongolian Stock Exchange gave an interview to our magazine. He said to promote the establishment of institutional investors at the stock exchange. Can you share your experience of working in Korea?

-We were just talking about this. In the 90s the Korean stock market index was never able to get over 700. And that was because nobody understood Korea. They didn’t understand how Korea’s corporations operated work and there was no transparency whatsoever in corporate governance. Transparency in corporate governance was practically non-existent,  and therefore public information about how corporations made decisions, ran their businesses, how they utilize capital didn’t exist. And there certainly weren’t any investor rights. The Korean corporations thought that shareholders were a public nuisance. Listing on the stock market 20 years ago was more about the sense of pride that people wanted to buy their shares. They never thought of the value of those shareholders much less that the shareholders had any rights to determining how a corporation should be managed!

-How this attitude of the Korean corporations could be changed?

-This attitude has changed radically in just the last 10 years. Over just the last decade as Korean corporations began to expand beyond Korea and into global markets they learned the value of being able to access international public markets in order to raise capital to fund overseas expansion – to do so, they had to accept and adapt to global market standards especially in terms of transparency and public accountability in corporate governance.   In adapting these standards they found that it was actually a huge benefit to them both in terms of branding and international reputation, and most surprising for Korean corporations they began to find that transparent governance actually built  market value for their companies.

-Which results came out of it?

-Most importantly of all, Korean corporations, admittedly quite reluctantly and often forced to do so by Korean government policy, began to import that market discipline to Korea with the result that the Korean stock index tripled from around 670 in the late nineties to over the 2200 mark it enjoys today (and the KOSPI is now one of the most favored Asian stock markets of global foreign investors). The result of this sometimes unenthusiastic acceptance of change is that  today Korean corporations are among the best run corporations anywhere in the world.  The addiction that Korean conglomerates once had for bank financed debt (with a few major Korean conglomerates having debt to equity rations as high as 23,000 per cent!) a dependency which, by the way, allowed them to operate  almost as “secretive” empires (and the problems of corruption that such a system  produces) collapsed in the Asian financial crises of 1999 – 2001.

-How the Korean corporations became transparent?

-The Korean government’s critical role in enforcing stock market disciplines forced Korean corporation to become transparent. What they found was by following the rules of improved governance and accountability, listing on the market was good for the corporations and a boon to the Korean economy. And that is the power and advantage of a well managed public market;  while it insists on transparency and highest standards of corporate discipline it acts as an incredibly efficient conduit for delivering capital at competitive rates and, in doing so, augments the reputation and value not just of the firms listed on that market but the image of the country itself.  Transparency is then  not a burden but is, in fact,  an advantage and a measure of a firm’s maturity and success.

-And now the Korean corporations demand transparency from the Mongolian companies?

-It is something of an irony for me to hear Korean corporations now complaining about and demanding from Mongolian companies higher levels of transparency, reduction of corruption and calls for improved governance , all  market attributes that that they would  not have even considered  listening to anyone’s complaints (much less conform to) as recently (and still, frankly, to some extent today) 15 years ago. Korean corporations back then would have thought such complaints to be an unnecessary intrusion on their executive management rights and a blatant attempt to undermine Korean corporate ownership.  Through the Korean government’s determined efforts, Korea is today one of the most open investment markets anywhere in Asia. Its currency markets are, in my opinion, among the most liberal anywhere in Asia.

-What could you tell us about the Mongolian Korean relationships?

-There are now almost 40,000 young Mongolian working and studying in Korea today!  What is exciting to me and promising for Mongolia is that many of these young Mongolians  are studying at the universities in Korea. They are coming back educated in the Korean experience just as beginning 20 years ago Korea sent its youngest and brightest to America and Europe to study in many of the West’s greatest universities. And those young Korean imported many of the economic, financial and market disciplines back to Korea. And now the Mongolians are doing the same thing, only they are learning these disciplines from the Koreans!

You know, it is an open secret that Koreans love to claim that they are all descended from Mongolian ancestors. They believe (and it is true after all) that their very genetic make-up is Mongolian. Every Korean is intensely proud of being of the same stock as the descendents of  Genghis Khan. And they all love to tell foreigners of how when a Korean baby is born it carries the “Mongolian Spot”, which is manifested as a blue spot on the baby’s bottom. I believe that when a Korean travels to Mongolia he or she has an almost spiritual sense of having come “home”, of following in their ancestors footsteps all the way back to Mongolia. And so I believe that Koreans experience a sense of pride in helping to  Mongolia achieve its place in the global arena – in a sense, the Koreans are helping to build the future of their ancestral home. This is something you cannot duplicate anywhere else in the world.  The advantage to Mongolia today is that as a country, as a government and as a changing society, it doesn’t have to look to Europe or to America for example and it does not need to look to China for inspiration in the management of its economic growth (and given the fierce independence of the average Mongolian, I certainly don’t think that China is a political or economic model they could even possibly  duplicate). No, in my opinion there really is only one country that Mongolia needs to look to for inspiration and as a model upon which to build its future, a model of success achieved by a people who pride themselves on their own Mongolian roots – and that model is Korea.

-Benefits and advantage of coming to Korea? Which obstacles did you encounter during your first year there. What do you think, which obstacles could be in Mongolia?

-That is a really good question. And that is probably why I am in Mongolia. When I went to Korea in early 90s, there was almost no significant foreign community except the US army. Korea was considered the worst place foreign expatriate to have to be posted. No corporate executive wanted to be posted in Korea but rather wanted to live in Japan or Hong Kong and only travel to Korea as business required. Yet that was exactly the place I decided to go!. Upon arriving in Korean I had three distinct advantages over every else:. I was young, I was stupid and I was full of adventure. I was stupid since I didn’t know everything in Korea was hard since I didn’t know anything about Korea anyway. It simply didn’t occur to me that it should be easy – or else why would I have come?. You know, climbing a mountain is hard, but if you love climbing  mountains you do it anyway. It seemed like a great adventure and I was overwhelmed by the energy and determination of the Korean people. My first impression of Korea in those days was that  nobody smiled. Everybody was intense about getting to schools, becoming lawyers, scientists, engineers, managers and doctors – there was just a great sense of a “peoples” mission to build the  country. Then I began to understand how Koreans think,  the power of the collective Korean mind, and the power of a unity of purpose. All the problems, all the troubles, all the things that the investment bankers would consider as terrible weaknesses and disadvantages in an economy, I thought were Korean strengths, its power and its future.

-How do you feel during your first visit in our country?

- When I came to Mongolia yesterday for the first time in my life, I felt the same surge of energy and excitement that I did 20 years ago coming to Korea. When I first arrived  to Korea, everybody said: “6 months and you will go running home to Boston”. But now, 20 years later, I have built my own companies in Korea, I have headed the real estate investment division of one of America’s major investments banks in Korea, I have built a brand new city in Korea and I have raised global capital for investment into Korea.  As I said, when I came to Mongolia yesterday  I felt the same surge of excitement that I did coming to Korea 20 years ago.  Mongolians  want their county to take its place in the world, everybody in Mongolia feels this is their country’s time. I can tell you without hesitation that I have never met so many incredibly intelligent, risk taking, ready for anything the future might offer young professionals as I have in the past two day in Ulaanbaatar. Yes, it all feels like the Korea of 20 years ago.

-What were the 3 reasons you came to Mongolia?

-Because where I was once young I am now mature, because where I was once adventurous I am now wiser, because where I was once just stupid I am now experienced.  Mongolia doesn’t need just young, stupid and adventurous. It  needs maturity, wisdom and experience to guide its future and avoid the mistakes of other developing nations (think of the tragedy of the Philippines). What I see from the advantage of experience is I can  guess where Mongolia is heading in the next 10 years. What I see is not challenge in Mongolia and I don’t focus on the disadvantages but what I do see are  the opportunities that Mongolia offers and what I am convinced of is that Doran Capital Partners working together with Eurasia Capital have once in a  lifetime opportunity to contribute to the building of a great economy. Well, perhaps because of my Korean experience I can say that this is actually a twice in a life time chance!  We can be part of creating solutions for Mongolians and Korean investors because of our experiences in similar places with similar histories of development. We didn’t come here full of professional arrogance, we are coming here on the basis of hard earned wisdom and experience gained from living and working in countries with a similar development  experience and having lived through the mistakes as well as the successes made in those places. We believe we can actually be part of bringing Mongolian business and foreign investors together and for mutual success by helping both to avoid the errors made in other places. In doing so, may be we can have the privilege of having made a small contribution to building a successful Mongolian development model that other emerging markets can follow.

-Have you established the Fund?

-We have not established the fund. We have reached the first stage of creating a fund in that we both agree and are committed to working together to bring Mongolian and Korean firms and investors together and through this effort make our contribution to bringing both countries closer together.

-What is the first step?

-First step is defining the purpose and mission of the Fund.  To do so we must first refine our investment goals and , then we need to identify  the optimum target investor groups in Korea those who would most benefit from investing in Mongolia. Of course, the first real t step is to identify, assess and verify those investment opportunities that we believe will be most attractive to Korean investors.

-What would be the guideline for the sectors of the investment?

-We will look for discipline in governance of the companies, we would look for the energy of the principles and the commitment of those executives to growing their companies – not simply growing rich,  Eurasia and Doran Capital  are not about  just making money, we are about living a dream to build something of value for our partnership, for Mongolians, for Koreans.
For us management is  critical – it is, in fact, the primary component in evaluating an investment opportunity. When we consider any investment we look to the management to assess the level of their integrity, their level of commitment to building a successful company, to their underlying motivations and avoiding the “get rich quick” crowd. We ask the hard questions: How does the investor make money? Investing is not a missionary expedition. The investors are looking to make returns in exchange for the risks they are taking. They are going to look for companies they feel they can trust in making an investment. It is simply a fact that the first investments that we recommend to Korean investors will be the measure by which any future success we might have in raising future investment capital for Mongolia will be determined..

-What was your first investment success story in Korea?

-My first investment was in me!  When I came to Korea as an entrepreneur, I had to survive on the little financial resources I had (which were at the time almost none). Four years later I had 15 people working for me. 2 years after that Morgan Stanley bought my company and I suddenly found that I had the responsibility for investing 2 billion USD of foreign capital in Korea as the President of Morgan Stanley’s Korean real estate investments. Doran Capital Partners now has offices in Hong Kong, Seoul, Melbourne, London and we are going to soon open an office in New Delhi – and now, through our partnership with Eurasia, we are in Mongolia! You asked me about the big success. Surviving and being able to see how the small idea can be turned into a global company – that is the essence of success. And I felt just as excited by each small success in the beginning, among which  was simply being surprised that I survived, as I now feel in some of the multi-million dollar projects we are now involved with. And, now, here I am in Mongolia having the honor to work in partnership with my good friend Alisher who is as a person and a professional demonstrates the highest standards of integrity and honesty and who has built an extraordinary investment banking business in Mongolia that exactly reflects those qualities.

-What is the risk you are taking on?

-The biggest risk we are taking I would say is the risk to  our reputations given the expectations for our success in Mongolia. But then, that’s okay, after all I have been taking risks all my life. I go to a place I’ve never been to before and I try to create something out of nothing or I undertake an investment in which I just might get (metaphorically) killed in the attempt to have the experience of accomplishing something extraordinary. You see, I don’t climb mountains or jump out of planes. Do you know why? It is because I take huge business risks all the time. On Sunday, I can assure you, all I want to do is to quietly read a book. My entire life has been one long exercise in taking risks – I wouldn’t want to live in any other way.